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Higher Business - Finance > Finance > Flashcards

Finance Flashcards

1
Q

Name 6 short term sources of finance

A

Retained profits
Government grant
Sale of asset
Bank overdraft
Trade credit
Factoring

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2
Q

Describe sale of asset

A

Business sells peive of equipment

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3
Q

Describe a government grant

A

Lump sum of money firm receives from government, doesn’t need repayed

Firm can acheveive thus by meeting a requirement like locating in an area of high unemployment

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4
Q

Describe bank overdraft

A

When a bank allows the firm to exceed the funds in their account, intrest is still paid

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5
Q

Describe trade credit

A

Supplier will deliver supplies to firm and allow them to pay at a later date

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6
Q

Describe factoring

A

Firm will collect all outstanding debts and sell them onto another firm (for a lower price than would receive getting debts themselves but saves time)

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7
Q

Name 3 medium term sources of finance

A

Bank loan
HP
LEASING

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8
Q

Describe hire purchase

A

Firm will higher equipment and pay in instalments after last instalment firm takes ownership of equipment

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9
Q

Describe leasing

A

Firm rents a building or equipment for an agreed period of time

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10
Q

Describe bank loan

A

Bank provides firm with a lump sum of cash that is paid back in instalments with intrest

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11
Q

Name 4 long term sources of finance

A

Mortgage
Crowd funding
Venture capatilist
Debenture

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12
Q

Describe a mortgage

A

Loan given to firms to purchase a premises repaid in instalments with intrest

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13
Q

Describe crowd funding

A

Where firm will find a project by raising money from a large amount of people who contribute a small amount each

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14
Q

Describe a vaneture capatilist

A

Private investors that provide finance where banks deem the investment too risky (dragons den)

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15
Q

Positive and negative of sale of asset

A

No intrest to be payed

No longer have equipment

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16
Q

Positive and negative of grant

A

Doesn’t need repayed

Often have to meet requirements to get one

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17
Q

Positive and 2negative of overdraft

A

Helps firm deal with cash flow when balance is 0

Bank can withdraw facility at any time
Can work out more expensive than a loan due to high intrest rates

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18
Q

2 Positive and negative of trade credit

A

Goods can pay for repayment for supplier
Helps with cash flow as don’t pay upfront

Normally miss out on a discount due to not paying upfront

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19
Q

Positive and 2 negative of HP

A

Receive items up front while making instalments

Normally works out more expensive than buying outright
Don’t own item till last payment

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20
Q

Positive and 2negative of leasing

A

Equipment can easily be changed if it becomes obsolete which means doesn’t take up finance

Firm never owns equipment
If loaned for a long time could work out more expensive than buying outright

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21
Q

Positive and 2negative of bank loan

A

Firm receives lump sum up front and can spread repayments

Intrest charged which means paying back more than borrowed
Small firms normally charged more intrest

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22
Q

Positive and negative of mortgage

A

Same as bank loan but you own property

If firm doesn’t keep on top of payment of instalments then bank can retake ownership of property which means firm may loose premises

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23
Q

Positive and 2negative of share issue

A

Allows firm to raise large very large amount of finance that doesn’t need paid back

Dilutes values of existing shares
Process of releasing shares is expensive

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24
Q

Positive and 2 negative of venture capatilist

A

Provide expertise aswell as finance

Normally charge high intrest rates for loan
Want part ownership in return also

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25
Q

2 Positive and 2 negative ofdebenture

A

Allows firm to raise very large sums of money
Intrest spread over long time

Even if firm makes a loss repayments must be made
Debenture holders have right to sell business assets in order for loan to be repayed

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26
Q

What is a cash budget

A

Forecast of all cash going in and out of a firm over a period of time ( normally a year)

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27
Q

Name 5 potential cash budget problems

A

Low sales which has lowered anount of money coming into business
Owner taking too many personal drawings
Too much money tied up in stock
Firm not chasing in unpaid bills
Borrowed a loan at too high of an intrest rate

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28
Q

7 solutions for a poor cash budget solutions

A

Organise a source of finance
Negoatiate better discounts with suppliers
Lease/HP equipment instead of buying, spreads repayments
Extended credit period with supplier which means firm has more time to repay debts
Chase in oursdiandung bills
Shorten time between buying and selling goods
Offer discounts to increase sales

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29
Q

5 reasons for a cash budget

A

Allows firm to spot when they have surplus cash and are able to purchase stuff
Control the business, eg overdraft being arranged to cover area of low cash
Useful to take to appeal for a bank loan
Allows firm to set targets for managers and departments
Provides a tool for firm to compare budgeted with actual performance

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30
Q

How to calculate PFTY

A

GP - expenses

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31
Q

Profit =

A

Sales - costs

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32
Q

GP =

A

Sales - cost of sales

33
Q

What is cost of sales

A

Cost of purchases firm has made over previous trading year

34
Q

What does income statement calculate

A

GP
PFTY

35
Q

What is opening stock

A

Stock firm has at start of finnancial year( ie when a firm opens on first of January the stock it already has on its shelves)

36
Q

What is purchases

A

Raw materials and products firm buys to make the finished goods

37
Q

What is closing stock

A

The stock ‘on the shelves’ when a firm finishes a finishes a financial year.bwhich is carried over to next year

38
Q

Cost of sales =

A

Opening stock + purchases - closing stock

39
Q

GP=

A

Sales - cost of goods sold

40
Q

Income statement and cash budget examples

A

Look at booklet

41
Q

6 Expenses examples

A

Lighting, electrical, rent, advertising costs, delivery costs, repayments of loans ( overheads)

42
Q

PFTY =

A

GP - expenses

43
Q

Examples of how to cut expenses

A

Bulk buying
Lease equipment
Firm can be more energy efficient (turn off lights)
Ban personal staff phone calls on company phone
Change energy supplier for better deal
Ban overtime to reduce wage bill

44
Q

8 Purpose of income statement

A

Calculate GP
calculate cost of sales
Shows net sales
Calculates total cost of expenses
Calculate PFTY
shows other incomes
AIDS decision making eg what expense to cut
Calculate tax that needs payed
To compare with previous years

45
Q

What does a statement of financial position do

A

Shows value of business at particular point in time

46
Q

Non current assets

A

Items a firm owns and will keep for more than a year

47
Q

Current assets

A

Items firm owns and will keep for less than a year

48
Q

Current liabilities

A

Items firm owes and will pay for in short term

49
Q

Working equity

A

Shows difference between CA and CL
Shows funds available after short term debts met

50
Q

PFTY description

A

Profit made after all business expenses

51
Q

Balance sheet/ statement of financial position example

A

Look at booklet

52
Q

What are the 3 types of ratios

A

Probability
Liquidity
Efficiency

53
Q

What is a probability ratio

A

Looks at sales or expenses in relation to profits

54
Q

What is a liquidity ratio

A

Shows ability off firm to pay off its short term debts

55
Q

What is an efficiency ratio

A

Ratios used to measure efficiency which certain resources have been used within business

56
Q

Name 3 probability ratios

A

GP %
PFTY %
ROEE

57
Q

How to calculate GP%

A

GP/net sales x 100= %

58
Q

What does GP% do

A

Calculate the % of every 1 pound that goes towards GP

59
Q

How can a firm improve GP%

A

Increase selling price
Find cheaper suppliers
Negotiate discounts from supplier
Reduce theft or wast

60
Q

How to calculate PFTY %

A

PFTY/NET SALES x 100=%

61
Q

What does thebPFTY % do

A

Measures the % of every 1pound that goes towards PFTY

62
Q

How to improve PFTY%

A

Improve GP
identify expenses that can be reduced

63
Q

What is ROEE

A

Measures return on the capital invested in business by owner

64
Q

How to calculate ROEE

A

PFTY/opening capital x 100 =%

65
Q

How to improve ROEE

A

Increase sales and GP
Decrease expenses

66
Q

Name the 2 liquidity ratios

A

Current ratio
Acid test ratio

67
Q

Current ratio =

A

CA/CL

68
Q

What does a current ratio do

A

Shows ability of a business to pay its short term debts

69
Q

To improve a current ratio

A

Increase CA
decrease CL

70
Q

Acid test ratio =

A

CAS-Stock/ CL

71
Q

What does acid test ratio show

A

Ability or firm to pay short term debts inna crisis situation

72
Q

Name the efficiency ratio

A

ROTI- rate of inventory turnover

73
Q

How to calculate ROTI

A

Cost of sales / average stock held

74
Q

Average stock =

A

Closing stock + opening stock / 2

75
Q

3 To improve ROTI

A

Offer promotions
Advertise
Eisner stock levels match demand

76
Q

4 Use of ratio analysis

A

Compare current performance with previous years
Compare against competitors
Hughlights part of business that needs attention (eg expenses too high)
AIDS decision making (eg firm will know when to take out a loan)

77
Q

3 Limitations of ratio analysis

A

Comparions must be similar (size and industry)
Findings don’t take in external PESTEC factirslile a recessionthay would impact sales
Findings don’t take in internal factors like low staff morale

78
Q

Name 4 people and why they use finnancial statements

A

Employees - ensure being paid fair
Managers - use it to measure performance
Owners/ shareholders - aid decisions at an AGM
Suppliers - asses firms ability to pay off debts

79
Q

Name 3 types of technology to be used in finance department

A

Spreadsheet - performs calculations rapidly and accurately that no human could do
-spreadsheets can make graphs so department can spot trends

Databases- firm can use these electronically filling systems to record proves and cost of supplies

Pay pal- allows customers to pay online which makes more sales and helps control cash flow

Higher Business - Finance (5 decks)

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